A Must Read for Those Exporting to Missouri – 8th Circuit Rules Law Protecting Wholesalers Not Applicable Where Requirements Not Met

In an informative opinion for anyone shipping their product to Missouri for distribution by a wholesaler, the 8th Circuit Court of Appeals has rejected a wholesaler’s attempt to avail itself of the Missouri franchise protection statutes for that second tier of the three-tier system based on the fact that the parties didn’t actually create a franchise agreement that would allow for the protections because the wholesaler didn’t get a trademark license with its distribution agreement.

Anyone wanting to avoid the protectionist statutes that would keep you from changing distributors in Missouri will want to be familiar with this opinion as a way to possibly avoid Section 407.413 of the Missouri Revised Statutes which has provisions that would, like many states, protect the wholesaler unless the amorphous “good cause” can be shown. Two important provisions of this section read as follows:

2. Notwithstanding the terms, provisions and conditions of any franchise, no supplier shall unilaterally terminate or refuse to continue or change substantially the condition of any franchise with the wholesaler unless the supplier has first established good cause for such termination, noncontinuance or change.

3. Any wholesaler may bring an action in a court of competent jurisdiction against a supplier for violation of any of the provisions of this section and may recover damages sustained by such wholesaler together with the costs of the action and reasonable attorney’s fees.

From the opinion, Shelton Brothers is a company from Massachusetts that imports a variety of artisanal beers from around the world (the selection on their website is impressive). Missouri Beverage Company is a Missouri beverage wholesaler. From 2006 through 2009, the parties had an oral agreement for Missouri Beverage to distribute Shelton’s imports in the state. In 2010, Shelton sent a termination notice to Missouri Beverage. Missouri Beverage sued saying that Shelton’s termination violated the Missouri franchise statutes by failing to give 90 days notice and was a violation of Section 407.413.

The lower court found for Shelton because under the Missouri franchise laws, having a franchise means:

a written or oral arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trademark, service mark, or related characteristic, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise… (including liquor and beer wholesalers).

The problem for Missouri Beverage was that Shelton never gave a license to use the trade name, trademark or service mark – which makes sense because as an importer, Shelton’s name is relatively unimportant compared to the names and brands of those artisanal beers it supplies. Few people are going to line up at the local market or bar because “Shelton imported brews are on tap”, but they’d certainly line up in September to try a taste of the only Jolly Pumpkin Bam Noire available in Missouri.

The end result was that the appellate court upheld the decision of the lower court finding that there was no franchise so the protections for beer wholesalers in the franchise laws didn’t apply and Shelton had the right to terminate without needing to prove “good cause”.

What’s also worth noting is that there were amici in this case weighing in with briefs for Missouri Beverage – pretty powerful amici for the Missouri beverage industry. The Missouri Beer Wholesalers Association and the Missouri Wine and Spirits Association filed a brief in support of Missouri Beverage’s position. We’ve got the brief for you here.

While the argument was whether the franchise had been established, the Court noted that the amici and Missouri Beverage spent a large portion of their briefs attempting to discuss the 21st Amendment and the three-tier system:

MoBev and amici devote large shares of their briefs to discussion of the 21st Amendment to the United States Constitution and the history of the three-tiered liquor distribution system between suppliers, wholesalers, and retailers in the United States, apparently to argue that the Missouri legislature, cognizant of this history, intended to create special franchise privileges for those in the liquor industry. However interesting that historical account may be, we do not find it relevant to the interpretation of the statutory provision at issue. We conclude that the plain language of § 407.400(1) requires liquor supplier-wholesaler relationships to satisfy the general definition to be deemed a franchise.

The argument wasn’t a winner – the franchise law of Missouri and the fact that a license hadn’t been granted was. This really is a must-read for those of you looking to export to Missouri.